Pricing Current Climate Risk: Hurricane Models and Florida Home Insurance
Presented by:
Benjamin Collier
School of Business
University of Wisconsin-Madison
Wednesday, November 5, 2025
12:00 pm-1:15 pm
Taylor-Hibbard Seminar Room (Rm103)
To what extent do rising homeowners insurance premiums reflect growing climate risk? We examine hurricane risk in Florida and how insurers price it. Insurers rely on proprietary, third-party catastrophe models that estimate property-level expected losses. Using data from these models, we describe estimated hurricane risk across the state and how it evolved from 2006 to 2021. Expected property losses from hurricanes increased by 40 to 50%. Regarding insurance prices, insurers wanting to adjust their hurricane premium rates must file a request with the state regulator and justify the change with hurricane model output. We collect the premium rate filing data for insurers representing 70% of the total market. Leveraging discrete updates to hurricane models, we estimate that a $1 increase in expected losses increases hurricane premiums by $4. Overall, hurricane premiums increased by more than 200% during our period of study. We consider potential mechanisms and find that the large mark-up above expected loss appears to reflect 1) shifts in the insurance market toward local, less diversified insurers, paired with 2) the rising cost of reinsurance.